What is a Bear Put Spread?
A Bear Put Spread is a debit spread using Put options.
- You buy a higher strike Put (ATM or slightly ITM).
- You sell a lower strike Put (OTM).
This reduces the cost of buying a Put while capping both risk and reward.
š¹ Market View
- Expectation: Market to decline moderately.
- Best Use Case: Slightly bearish outlook.
š¹ Volatility View
- Works best in low IV (when Puts are cheaper to buy).
š¹ Example (Nifty @ 20,000)
- Buy 20,000 Put = ā¹200
- Sell 19,600 Put = ā¹80
š Net Debit = ā¹120
š¹ Payoff Analysis
- Max Profit: Spread width ā Net Debit = (400 ā 120) = ā¹280
- Max Loss: Net Debit = ā¹120
- Breakeven: Higher Strike ā Net Debit = 20,000 ā 120 = 19,880
How Profit is Arrived At:
- If Nifty = 19,600: Long Put = ā¹400, Short Put = 0 ā Net = 400 ā 120 = ā¹280 profit.
- If Nifty > 20,000: Both expire worthless ā Loss = ā¹120.